March 2017 - Week 1 Edition

Commodities are Down, but Silver is the #1 Commodity of 2017

So far in 2017, the widely-followed CRB Commodity Index is down 1.45%, according to last weekend’s Wall Street Journal.  That means the average of the 19 commodities in that index is down for the year, led by natural gas, down 24.1%.  Crude oil is down slightly, -0.7%, but gold is up 6.6%, and silver is the top-performing commodity in the CRB index, up 10.8%.  The platinum-group metals (not a part of the CRB index) are also up sharply, palladium is up 11.8% and platinum is up 8.8%, so the precious metals complex is rising sharply while the rest of the commodity universe is treading water or slowly sinking.

When the precious metals rise while the rest of the commodity universe is falling, that is a sign that gold and the other precious metals are performing their role as a “crisis hedge” and “inflation hedge.”  The sense of crisis is rising as the White House is the center of a media hurricane of alleged sabotage, while the nations of Europe are lining up to elect Trump-like nationalists who may destroy the European Union.   Meanwhile, inflation is rising above the Federal Reserve’s 2% target rate in the U.S., while Europe is also seeing rising inflation – after years of fighting deflation with ultra-low (or even negative) interest rates.

By year’s end, the euro could be virtually “dead” as a currency, with the European nations reverting to their old German marks, French francs or Italian lira for their domestic economies.  The first European elections will be held next week in The Netherlands, where a populist candidate is currently favored to win. Based on this news – and a hunch that the Federal Reserve will raise rates on the same day (March 15) – leading Dutch bank ABN AMRO is revising its gold target up to $1,300 by year’s end.

Georgette Boele, the coordinator of foreign exchange and precious metals strategy at ABN Amro, wrote last week that “we are no longer expecting lower gold prices this year and see them stabilizing in the near term and rallying later in the year and in 2018. Our new year-end 2017 forecast is $1,300 per ounce.”

Gold reached $1,260 early last week, but President Trump’s talk before Congress on Tuesday, February 28, led many traders to assume that the Trump financial agenda just might pass Congress this year, so they poured into stocks on March 1, sending the Dow up 300 points at the expense of gold as a “crisis hedge” investment.  The London morning gold fix fell to $1,240 on Wednesday.  Then came a talk by Fed Chair Janet Yellen on Friday, indicating a rate increase in mid-March, which sent gold down to $1,235 on Friday, the first weekly drop in gold prices in the last five weeks. But it’s important to remember that gold reached an annual low the last two times rates were increased (mid-December 2015 and 2016), but then gold rose very strongly after the actual rate increase happened.  That kind of bounce could happen again.

February Gold Sales Soared in India

We’ve been waiting a long time to hear good news out of India, where their government seems to think of one counter-productive idea after another in an attempt to shut down the cash market for gold and jewelry in the relatively unregulated rural markets of India.   Last week, the metals consultancy GFMS reported that the imports of gold to India in February rose 87% over the same month a year ago.  Jewelers in India bought over 50 metric tons of gold last month vs. 27 tons the previous February. Sudheesh Nambiath, a senior analyst at GFMS, attributed the rise to “pent-up demand” after the currency recall last fall, along with “wedding related demand.” (Last fall, the Modi government acted to remove 86% of cash from India’s economy in an effort to thwart “black market” activities.) For years, India was the #1 consumer of physical gold, but they have fallen to #2 (China is now #1) due to these government attacks on gold.

By contrast to India, China has imported less gold than a year ago, and physical sales of gold coins at the U.S. Mint declined 67% year-over-year in February.  In addition, American Eagle silver bullion sales fell 75% from January’s totals. Analysts are saying this is due to the expected rate increase by the Fed in mid-March.  However, as we have seen, when the Fed finally acts on rates, gold tends to soar after the fact. If the Fed postpones an expected rate increase, gold has historically tended to stage a relief rally. Gold tends to fall in advance of a Fed meeting, but it also tends to rise after the meeting, no matter what they decide.

Why I Write about Gold More than Gold Coins

Some clients and customers I meet wonder why I don’t write more about rare coins than gold and silver bullion. After all, I have written several award-winning books about coins and specific coin series, like Gold Double Eagles (of various types) and Gold Indian coins of several denominations and mints.

My answer is that a rising price of gold and silver invariably awakens the public’s interest in owning gold, through bullion coins at first.  This increases first-time callers to our coin company, since our advertising works better in a rising bullion market than when prices are falling.  This year is starting out with a gold bull market surge, so we are receiving more first-time callers than usual.  Many of them quickly become interested in rare silver and gold coins. In addition, many customers order my books on gold Indian coins and other rarities and become interested in owning a selection of rare gold and silver coins.  This is why I talk about gold. A rise in the price of gold motivates the public to pay attention to ads for American Silver Eagles, or Canadian gold coins, and then they discover the beauty and rarity of historical gold and silver.

By the way, we keep extensive “wish lists” for rare coins, such as the 1908-S $5 and $10 Indian in MS-61 to MS-63, or the Carson City mint’s $5 and $10 gold coins. I advise our customers to tell us if they are looking for a coin they can’t find.  Contact one of our representatives and we will keep our eye out for specific rare coins when we travel to buy coins.

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